XLP: Treasuries Weigh In

Over the last few weeks, the spread on the 10-year Treasury and the yield of the Consumer Staples Select Sector SPDR ETF (XLP) has decreased by 0.44% (from -1.39% to -0.95%). This represents a combination of price performance of the XLP combined with the fact that yields have crept higher. Why does this matter? We’ve noticed that the XLP has become increasingly sensitive to changes in yields on government securities in recent years.

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Client Talking Points

Ruffling Feathers

Japan is ruffling the feathers of China and Korea as it devalues the Yen in order to keep that “2% inflation target” in check. If it doesn’t end well, Japan won’t have China there to bail them out like Europe did. Caveat Emptor. What’s interesting is that while US equities are busy ripping higher week after week, South Korea, Brazil and China saw their stocks drop last week:

1. South Korea = KOSPI -2.1% (breaking TRADE and TREND support)

2. Brazil = Bovespa -1.3% (holding TRADE and TREND support)

3. China = Shanghai Composite -1.1% (holding TRADE and TREND support)

When the TRADE and TREND support snaps, we wait and watch rather than buy the dip. When support holds, we’ll buy ‘em. Anyone who bought China on Friday is enjoying the upside surprise this morning to the tune of +2.4% on the Shanghai Comp. Korea’s KOSPI is doing the opposite and is heading lower after last week. It goes to show you that markets work until they don’t.

Asset Allocation

CASH

46%

US EQUITIES

18%

INTL EQUITIES

18%

COMMODITIES

0%

FIXED INCOME

0%

INTL CURRENCIES

18%

Top Long Ideas

Company

Ticker

Sector

Duration

ASCA

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.

ADM

ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.

HOLX

HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

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According to LVS CEO Edward Tracy, Sands China has already received official approval for 200 additional live gaming tables. Tracy didn’t say if the tables would be made available on time for the Lunar New Year holiday, which starts on February 10.

Meanwhile, Mr Tracy also announced today that Sands China would soon raise salaries. But he didn’t provide details.

The second tower of the Sheraton Macao Hotel, located at Sands China’s Cotai Central casino resort, was officially completed today. The tower is however still waiting for government approval to start welcoming guests. Sheraton Macao managing director Josef Dolp, the property could be up and running as early as next month, ahead of the Lunar New Year, pending government approval.

SANDS CHINA ANNOUNCES INTERIM DIVIDEND Macau Business

Sands China declared on Friday an interim dividend of HK$0.67 (US$8.6 cents) per share, payable on or about February 28.

GONGBEI EXPANSION TO BE FINISHED SOON Macau Business

According to the mayor of Zhuhai, He Ningka, the Gongbei border checkpoint expansion could be ready in a few months. The expansion will almost double the Gongbei checkpoint’s capacity. It currently handles 260,000 to 300,000 travelers a day, but in the future it will be able to accommodate up to 500,000 crossings. The Gongbei expansion will cost RMB400 million (MOP513 million).

The Barrier Gate, its counterpart in Macau, through which travelers must pass before or after Gongbei, can already handle up to 500,000 people per day.

EMPLOYMENT SURVEY FOR OCTOBER-DECEMBER 2012 DSEC

Macau unemployment rate for October-December held stable at 1.9% in comparison with the previous period (September-November 2012). Total labor force was 357,000 and the labor force participation rate stood at 72.4%. Total employment reached 350,000, an increase of 500 over the previous period.

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01/28/13 07:22 AM EST

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